Many financial advisers who favor low-cost, broadly diversified and tax-efficient portfolios for wealthy clients are switching from no-load index mutual funds to exchange-traded funds, or at least including ETFs in the portfolios. Now, an online brokerage that caters to do-it-yourselfers is pitching exchange-traded funds to individual investors, along with advice on how to use them.

Both ETFs and index mutual funds seek to match the performance of a market benchmark, some as broad as the overall U.S. stock or bond market, while keeping costs low. One key difference is that ETFs trade like a stock on a stock exchange. You can buy or sell them at any time during the trading day at the current price and place "limit" orders to specify how much you are willing to pay or accept.

Mutual funds, by contrast, are bought and sold at the day's closing price. Depending on the time of day you place your order and how the market moves afterward, that price may be much higher or lower than you anticipated.

Advantages of exchange-traded funds include generally (though not always) lower annual operating expenses and fewer taxable distributions. With ETFs you have more choices to slice a portfolio by tracking narrower market sectors, such as stocks from a particular industry or country. (Narrow indexes, however, can increase risk and defeat the purpose of broad diversification.)

Arguably, the biggest drawback of ETFs is that you pay brokerage commissions every time you buy or sell. With no-load mutual funds there are no such commissions.

For investors with big portfolios ETF commissions can be more than offset by the lower operating costs and tax savings. But for small investors who want to add regularly to their accounts, such as putting in $100 or $200 every month, commissions can be a significant expense.

In addition, commissions can discourage investors from the recommended risk-reducing practice of "rebalancing," or buying or selling components of a portfolio periodically to keep its asset allocation to the intended mix.

Now, however, under a program offered by Amerivest, an online investment advisory service and subsidiary of TD Ameritrade Holding Corp., investors can buy, sell and rebalance diversified ETF portfolios with no commissions, although they must pay an annual advisory fee.

I find the Amerivest concept worthy of mention, just as I occasionally write about other financial products and services. As always, I am not recommending anything, just bringing the program to your attention.

Personally, I feel confident putting together a diversified low-cost portfolio and would not pay an ongoing fee for advice. For investors who need guidance, however, I find the Amerivest fee reasonable, considering the waiving of commissions and the broadly diversified, low-expense portfolios the service recommends. Even do-it-yourselfers can peek at the free Amerivest Web site, www.amerivest.com, and obtain ideas from the sample portfolios.

The Amerivest advisory fee is 0.35 percent of assets a year on accounts of $100,000 or more; 0.50 percent on accounts between $20,000 and $99,999, and the lesser of 2.95 percent or $100 a year on accounts under $20,000.

One-fourth of the fee is deducted each quarter.

"What we offer is a disciplined portfolio strategy geared for the long term," said Joe Moglia, chief executive of TD Ameritrade, the name of the combined brokerage from Ameritrade's acquisition of TD Waterhouse.

Although not the same as the more detailed guidance you could receive from a financial planner whom you would meet face to face, "if you are comfortable with the Internet, this is something you can do," Moglia said.

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Humberto Cruz is a columnist for Tribune Media Services. E-mail him at yourmoney@tribune.com.

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How one program works

Under a program offered by Amerivest, investors can buy, sell and rebalance diversified ETF portfolios with no commissions. Basically, it works like this:

You go online and answer questions about your financial goals, risk tolerance, investment time frame and amount available to invest. Based on your answers, Amerivest, which is part of a registered investment advisory firm, will suggest one of more than two dozen portfolios built largely on ETFs representing a mix of asset classes designed to balance potential risk and return.

For example, one sample $50,000 "balanced" portfolio consists of 50 percent equities, including U.S. large-cap, U.S. small-cap and international stocks, including those from emerging markets; 49 percent fixed income from short-term and intermediate-term U.S. government bonds, and 1 percent cash.

You are free to accept or modify the recommendation--the service bills itself as your "financial co-pilot," meaning you remain in charge.

For example, while you'll be reminded to assess progress toward your goals, it's your job to reassess those goals and your risk tolerance periodically to make sure the portfolio remains right for you.

"The investor needs to take responsibility for himself," said Joe Moglia, chief executive of TD Ameritrade. "If his goals have changed, if his risk tolerance has changed, nobody knows that better than the individual."

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